HOW TO CALCULATE MINIMUM WAGE FOR EMPLOYEES

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Pursuant to Law No. 13 of 2003 concerning Manpower, all Employers domiciled in Indonesia must ensure that their Employees receive no lesser than Minimum Wage as determined each year by the Government. Learn more on how the government calculates the Minimum Wage each year.


At the end of each year, each regional government in Indonesia issues a Governor Regulation and/or Decree stipulating the Minimum Wage for each province, regency, and administrative city for the next year. Pursuant to Article 41 Paragraph 1 Government Regulation No. 78 of 2015 concerning Manpower Wage (“GR 78/2015”) defines “Minimum Wage” as the minimum amount of monthly take home salary an Employee can receive, which excludes any benefits, or the total amount of main wage (Upah Pokok)  and the fixed allowance (Tunjangan Tetap).

Pursuant to Article 42 paragraph 1 and 2 GR 78/2015, Minimum Wage shall only be applicable to Employees with less than 1 (one) work period, and for Employees with work period of 1 (one) year is stipulated in a bipartite discussion between the Employee and the Employer within the Company

It is important to understand that the Minimum Wage is stipulated by each regional government, and not by the sole discretion of the Employer. The issuance of GR 78/2015 gives us a look on the new formula to calculate the raise of Minimum Wage for each year. GR 78/2015 also regulates that the determination of Minimum Wage each year is made based on decent living needs and with due observance of productivity and economic growth.

FORMULA TO CALCULATE MINIMUM WAGE

The determination of Minimum Wage as contemplated on Article 44 Paragraph 2 of GR 78/2015 is as follows :

UMn = UMt + {UMt x (Inflasit + % ∆ PDBt )}

Remark:
UMn      : Minimum Wage to Determine
UMt       : Current Minimum Wage
Inflasit   : Inflation calculated from September in the previous year up until September in the current year.
∆ PDBt  : Growth of Gross Domestic Product (GDP) calculated  from Gross Domestic ProductGrowth which includes the period Quarter III and IV of the previous year and Quarter I and II of the ongoing year.

An example of its application:

UMt       : Rp. 2.000.000,-
Inflasit : 5%
∆ PDBt  : 6%

UMn      = UMt + {UMt x (Inflasit + % ∆ PDBt)}
UMn      = Rp. 2.000.000,- + {Rp. 2.000.000,- x (5% + 6%)}
= Rp. 2.000.000,- + {Rp. 2.000.000,- x 11%}
= Rp. 2.000.000,- + Rp. 220.000,00
= Rp. 2.220.000,

APPLICATION OF MINIMUM WAGE

The Governor will then use the calculation above in issuing Governor Decree and/or Regulation which determines the Minimum Wage every year. It is important to understand that the Minimum Wage is a safety net for Employees, ensuring that they receive take home salary that is not lower from the Minimum Wage. It is also important to note that an Employer is also prohibited to lower the Employee salaries after the Minimum Wage is issued, to adjust with the lower Minimum Wage, in case the Employer has already set a wage higher than the Minimum Wage before the Minimum Wage is issued.

Of course, there is also another solution for Employers who are unable to pay Minimum Wage for the Employees, and that is to ask for a suspension from having to pay Minimum Wage, the procedure of which is regulated in the Law No.13 of 2003. If the suspension is approved by the governing authorities, the Employers become exempted from having to pay Minimum Wage.

HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailing laws and regulations.

SMART Consulting is an Indonesian Corporate Legal Services firm. SMART has assisted Clients in dealing with matters related to Manpower Law, such as drafting, reviewing and registering the Employee Toolkit, including Employment Agreement, Collective Labor Agreement, and Company Regulations. We also provide advisory services regarding Employment matters, as well as assistance in conducting termination of employment and manpower dispute resolutions.

Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.
E: info@smartcolaw.com
H: +62821-1234-1235

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